Is it DejaVu all over again

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Is it Deja-Vu all over again?
US International Competitiveness in 1970s and
2000s Dipak C. Jain and K. Ramakrishnan
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Introduction Welcome

• Motivation Context of Developments Global
  Competitiveness.
• Brief Background
• Situation in the Seventies
• Situation today the similarities
• So why is it different, if it is?
• Conclusion
• Questions / Discussion

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Background Post WorldWar
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Post World War World

• US dominant and relatively unscathed.
• Economy geared up and productive
• Europe / UK / Japan not as good.
• Intl Institutions/ Frameworks
• IMF, World Bank, Bretton Woods Agreement Fixed
  Exchange Rate System
• Marshall Plan for Europe and Rebuilding US
  dictated constitution for Japan
• Cold War and two super-power world.

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Decades of the Fifties and Sixties

• Relatively benign period in international trade
  for US Persistent Balance of Trade and Payments
  deficits, reflecting
• Imports gt gt Exports
• Offsetting Financial Inflows to the US, both in
  the nature of Portfolio and Direct investments.
• Accumulation of US Dollar denominated claims
  outside the US Attendant Seniorage benefits
  to the US as US Dollar becomes de-facto world
  currency.
• Global System Stability, job and wealth creation
  in Japan and Germany stemmed rise of communism.
• High and growing dependence on Foreign Oil,
  especially from the Middle East.
• Emergence of the Dollar Overhang Problem

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The Seventies Part 1 of todays theme

• Doubts about US ability to redeem US
  denominated claims held abroad, on the terms
  dictated by the Fixed Rate System
• Persistent deficits in the trade account appears
  to be more structural as Japan and Germany seem
  to make products in demand and US is unable to
  compete
• Concern about impact of loss of competitiveness
  and doubts about our model
• Beginning of doubts about the US power and
  supremacy Vietnam did not help

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Inflection Point - 1971

• Dakota Tribal Wisdom What do you do when
  you find yourself riding a dead / dying horse?
• Change Riders?
• Launch a study of the dead horse?
• Demonstrate you can ride a dead horse better than
  competition?
• Theres cost savings to feeding a dead horse?
• How about we acquire and merge a few dead horses?
• When you find yourself on a dead horse
  dismount
• Time for dramatic change for Forex. Regimes!
• --------------------------------------------------
  -
• Story framework based on a presentation by Dr.
  Suresh Subramanian, at USD Business Development
  Institute.

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So what did we do ?

• Tough situation Motherhood, Apple Pie and the
  Strong US Dollar 35 / ounce of gold
• Got off the gold-exchange standard.
• US is as good as it always was its only the
  other currencies are now better.
• I suppose now motherhood is not all its cracked
  up to be! Either. Considering the reluctance of
  folks today to embrace it.
• Apple-Pie reigns supreme..

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Seventies / Eighties and Nineties

• Global Oil Price Rise Led Inflation, 3rd world
  debt crisis (recycling of Petro-Dollars)
• Market driven changes in the country.
• Shareholder wealth maximization focus
• Greed is good MA and rise of global
  conglomerates!
• Country Unions, Free Trade Zones, and decline of
  nationalism. European Union finally happening.
• Radical technological Innovation and
  developments.
• Globalization, Hyper-competition, greater
  international coordination of regulation and
  integration of Markets
• Adoption of US Philosophy reduction in
  government power globally and increased reliance
  on free market philosophy.
• Emergence of Asia China and later in the 1990s
  even India!
• US continues to be worlds largest debtor nation
  as individuals and nations find funds to satisfy
  growing Thirst for Foreign Money here.

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Situation Today

• Once again, US Dollar is at risk in terms of
  value. But, system is changed, so no need for
  dramatic devaluation when orderly depreciation
  will do.!
• Once again we need greater and greater financing
  from foreigners New money 1 trillion plus each
  year!).
• Once again, US firms are not competitive
  internationally or even domestically!
• Fears about foreign dominance and our not being
  able to afford our current standard of living.
• Demographics the elephant in the room ..

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Situation Today ( 2 of 2)

• Once again, US Dollar is at risk in terms of
  value. But, system is changed, so no need for
  dramatic devaluation when orderly depreciation
  will do.!
• Once again we need greater and greater financing
  from foreigners New money 1 trillion plus each
  year!). Really not our fault, its Asians excess
  savings
• Once again, US firms are not competitive
  internationally or even domestically! Firms dont
  keep jobs here, customers buy imports, they just
  want it more!
• Fears about foreign dominance and our not being
  able to afford our current standard of living.
  Cant we just have them also pay like we are
  forced to do for out workers? They dont have
  same costs as we do we got to force some costs
  on them too!
• Demographics the elephant in the room .. Some
  things we can do something about, others It is
  what it is

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So whats different?

• Population 300 millions from 210 in 1970 good
  news, Projected to Increase to 400 Millions by
  2046. But structure of population of concern.
• Number of workers to total population on a steady
  decline. Past high savings age demographic, so
  how much can we really expect domestic population
  to save?
• High cost of social security, Medicare etc.
• Global competition is severe, best markets likely
  to be abroad, and harnessing the productivity of
  foreigners might well be key.
• .

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Conclusions

• QUESTIONS ?
• Thanks for being here tough to compete with Las
  Vegas attractions! and your interest!